How a Tailored Approach to Compliance Can Help Broker Dealers Pass FINRA Culture Reviews

Now that the Financial Industry Regulatory Authority (FINRA) is actively reviewing broker dealer culture, firms need to ensure their core values are up to par. But creating a culture of compliance can be challenging in an industry rife with regulatory standards. To bolster overall firm culture, broker dealers need to take a detail-oriented and efficient approach to compliance.

FINRA’s focus on broker dealer culture has been building in recent months. In January, the authority announced it would be prioritizing broker dealer culture in 2016. Then, in February, FINRA launched a targeted exam of over a dozen firms – an effort that will help the capital markets’ self-regulatory organization produce a set of expectations by which firm culture can be assessed.

As FINRA acknowledged, culture varies significantly across firms. The goal of this initiative isn’t to produce a uniform standard for broker dealer culture; instead, it’s to make sure that all firms prioritize certain approaches to establishing a strong culture, including:

  • Consistent dedication to building and evolving a firm’s culture, and making changes when necessary
  • Presence of a top-down structure for creating and enforcing values (i.e., executive management leads by example)
  • Concrete and prompt processes to deal with breaches of a firm’s cultural values
  • The ability to reign in firm sub-cultures that aren’t compliant with firm-wide values

For broker dealers, more sophisticated trade surveillance is an important first step to strengthen all of these cultural pillars. Without strong trade monitoring resources, broker dealers lack a comprehensive picture of how their firm and individual employees function in practice. And without this granular view, it can be challenging for executive management to institute a “tone from the top” that FINRA advocates. Broker dealers that don’t have robust surveillance in place risk fostering an atmosphere of indifference toward compliance. As a result, elements that inhibit a strong culture – such as rogue employee behavior – can flourish.

Firm58’s compliance & surveillance solution provides broker dealers with a precise and easily navigable means of tracking trading activity. The latest version, introduced in September, allows firms to customize their compliance rules and tailor surveillance based on trading groups and asset classes. This configurable resource empowers executives with the tools they need to build a more compliant firm culture and oversight.

With FINRA prioritizing broker dealer culture, it’s time for firms to do the same. Taking a targeted, rather than a fire hose, approach to compliance and surveillance is an important step in the right direction.